Offer in Compromise help from a Nashville Enrolled Agent

Four conditions come first, before the IRS looks at a single number. You must have filed every tax return you are legally required to file, received a bill for at least one of the debts in the offer, made the estimated tax payments required for the current year, and, if you have employees, made the federal tax deposits for the current quarter and the two before it. Anyone in an open bankruptcy is not eligible.

The IRS generally won’t accept an offer from someone who could pay in full through a payment plan or from the equity in their assets. If an IRS employee finds that returns are missing, the initial payment is applied to the debt and the offer is sent back, with no appeal.

That is why compliance is the firm’s first step on every offer. Tyrone J. Taylor taught offers in compromise to other tax professionals through Pro Tax Education, and the firm has “assisted hundreds of taxpayers in settling their accounts with the IRS and states.”

Reasonable collection potential (RCP) is the IRS’s measure of what it could collect from you, and an offer based on doubt as to collectibility must equal or exceed it [IRM 5.8.1]. The Form 433-A (OIC) worksheet builds it from two parts.

The first is asset equity. Real estate, vehicles, retirement accounts and business assets are entered at 80% of current market value, minus any loan, and the form notes that a retirement account may be reduced further for taxes and withdrawal penalties. The second is future income: your monthly income minus the expenses the IRS allows, multiplied by 12 if the offer is paid in five or fewer payments within five months, or by 24 if it is paid over 6 to 24 months.

Paying faster lowers the minimum offer, which is why the payment option is decided alongside the numbers and never afterward.

An offer is a calculation from your own finances, and the advertising phrase skips the calculation. When asset equity plus 12 months of leftover income already exceeds what you owe, there is nothing to compromise, and the IRS expects the debt to be paid through a plan or from the equity.

Offers below that figure are possible only on narrower grounds. Effective tax administration covers a taxpayer who could pay but where paying would cause economic hardship, or where public policy or equity supports it. A separate Form 656-L handles doubt as to liability, where you dispute owing the tax at all, and it cannot be submitted at the same time as a collectibility offer.

The firm’s old site warned about the same advertising: “Before you call one of the large advertisers claiming to solve your problems for pennies on the dollar, take the time to talk to your trusted, local expert.”

Form 656 goes in with a $205 application fee and an initial payment. Under the lump-sum option, that payment is 20% of the offer, and the rest is paid in five or fewer payments within five months of acceptance. Under the periodic payment option, you pay the first installment with the application, keep paying while the IRS reviews it, and finish within 6 to 24 months.

An individual who meets the IRS’s low-income certification guidelines pays no fee and makes no payments during review. Otherwise the IRS keeps the fee unless the offer is not accepted for processing, and payments made are applied to the debt.

While the offer is pending, and for 30 days after a rejection plus any appeal, the IRS may not levy [26 U.S.C. § 6331(k)(1)]. It may file a lien, and it may keep any refund on a return assessed before the offer is accepted.

Before an offer is recommended, Tyrone J. Taylor runs the IRS’s arithmetic on your real figures and compares the result with two other numbers: the balance and the collection statute date on each year. If the minimum offer comes out close to the balance, an installment agreement is usually the cheaper path. If the dates are close to expiring, a different strategy may make more sense.

Compliance after acceptance is the other half. If you fail to file or pay on time during the five years after an offer is accepted, the IRS may default it, and the original debt returns, less payments, with interest and penalties added back. Returns, estimated payments and deposits are part of the plan from the first meeting.

None of this is a prediction: this is general information, and whether an offer fits turns on your facts. The wider process is on the IRS representation page.